The second sister has just caught up with the first.
It won't be long before the third joins the two.
There and then the three will increasingly decide France's fortunes in bond markets.

Such is the logic of the system, the natural order of things, the déjà vu setting that has carried every peripheral country to its present plight. Risky debt warrants risk premiums on top of rates in an upward spiral eventually driving entire nations/economies to the wall.

The most unfortunate circumstance is governments relied on debt to finance expenditure way above basic rules of prudency.
Once rating agencies - the sisters (3 of them, all US-based) - determine what financial markets should do and both gain the upper hand politicians and governments look hapless, dejected, thorn between a crude systemic function and their peoples.
Who wins the contest?
The system, the very system they ought to know inside out.
To the detriment of countless millions among their own citizens.

I would like to believe that France will be different for all its underlying strengths and pivotal role in the EU and Eurozone.
Its strengths should, on balance, outweigh its weaknesses and rigidities.
The tug-of-war has just begun.

Fitch is not "originally" French. It was founded by John Knowles Fitch in New York, and now has dual headquarters in London and New York. It is now 50-percent owned by a Paris-based holding called Fimalac (owned by French entrepreneur Marc Ladreit de Lacharrière) and the rest is owned by the U.S group Hearst Corporation.

Moody's motivations as is typical with the rating agencies these days, were clearly political.

How private companies are allowed to meddle into the politics of sovereign nations is something we should all be worried about.

It is time to put an end to this farce. These companies are not fulfilling their role as 'raters' but rather as protectors of vested interests. They're an oligopoly - they are biased, wrong most of the times, and there is so much evidence to suggest that not only their corrupt but that their economic models to rate sovereigns are as good as what's written on your toilet paper that it is only so sad that you still have people actually believing a word of what they say.

They are not "allowed", they have been commissioned by the sovereign nations. IMHO the way it was done was rash, ideologically driven and inefficient, but their legitimacy to "meddle" cannot be impugned.

Credit rating agencies give ratings in the same way as Rollings Stones magazine rates the latest music releases. Investors, like music fans, may believe them or not.
As you write, Moody is a private company and they can they can rate sovereign debt as they please - free speech, you know...
Finally, there is a euro summit every other week. When do you think it's an appropriate time to release the ratings?

Oh yes it can be impugned - we can denounce the Basle Accords - or suspend their application.

No one country can do that. But a continental entity like the EU can.

It was always a ludicrous idea to hand over Public Law power to a Private Law juridical person - and a foreign one at that. We allowed the idea to pass unchallenged that a private company would be more objective than a public agency - and we have given a handful of George Bush's cronies on Wall Street the right to screw with the international ratings of our banks, corporations and sovereigns. Basta!

I completely agree, but the Basle agreements do exist and for the time being, rating agencies are not exceeding their mandate or barging into government issues - they do so under invitation. Like, you know, Dracula who cannot enter a house without being asked in (usually by some brain-impaired Baroness).

As I said that mandate was based on the then prevailing antistatist ideology of the Thatcherites. Ludicrous ideology? Tallying the dead, I'd say criminal - a form of juvenile anarchism which found better tools than handmade bombs to explode the world. We do need to revise the way debt is assessed. But assessed it must be.

Rejecting the current model of oligopolistic milking of debtors by the Lucky Three is but a start. This leaves open the eternal issue - Quis custodes custodet?

An issue rife with special interests. Has it never struck you as strange that, in the bevy of UN specialized agencies, there is NO World Finance Organization (WFO)? Amusing, right? (taking cover, free speech has its limits)

I believe the wfo does exist. It is called the Bank for International Settlements in Basle (Basel or Basilea) - founded in 1930 under the pretext of managing Germany's post-WWI reparation payments.

From Wikipedia:
"Between 1933 and 1945, the board of directors of the BIS included Walter Funk, a prominent Nazi official; and Emil Puhl, who were both convicted at the Nuremberg trials after World War II, as well as Herman Schmitz, the director of IG Farben; and Baron von Schroeder, the owner of the J.H.Stein Bank, the bank that held the deposits of the Gestapo. There were allegations that the BIS had helped the Germans loot assets from occupied countries during World War II."

I still have one question for the rating agencies. If a country (the USA) who has NEVER defaulted on a soverign debt/bond can be downgraded how is it possible that countries who have ALREADY defaulted on sovereign debt retain a AAA rating? I think the rating agencies should stop trying to be 'fortune tellers' and instead the rating should be based on what HAS happened not what 'might' happen. That is the purview of the investment community in my opinion.

The reason of this downgrading is simple:Paris should have suffered it almost one year ago,but the sarkobandit bribed the agencies.Do you remember when S&P downgraded the US and 12 hours later confirmed the AAA of France?The gangster bribed also the EUROSTAT and the INSEE to be re elected,by "convincing" them of a nonexisting growth,the NOBEL INSTITUTION to have two french awarded during the marvelous period of France leading the EU(the literature winner a perfect unknown and a nullity),the Vatican to assure the beatification of their good servant JOHN PAUL II,the party of Fini in Italy.Must be shoking for the french to live in a legal state where an honest person like Hollande is clearly shifting the money destined to corruption and (lost) wars to social help.

They are private concerns making the most of their business environment, as is their duty.

That environment happens to be one of institutional oligopoly, thanks to widespread prudential rules which actually compel institutional investors to follow their advice, ie not to purchase or hold debt under a given grade, regardless of their considered opinion (if any). In the context of generalized trading of toxic assets generated (or revealed) by the subprime crisis, such strengthening of prudential rules was only logical.

However oligopolies have clear disadvantages, one being a strong disincentive to maintaining quality output. The big three are competing with each other on cost only. Why shoulder the expense of top analysts, in-depth monitoring, and independent thinking, when being content with summarily rehashing the current ultraliberal doxa does the job at minimal cost? In fact, for a rating agency, going the methodological and ethical distance would be suicidal - high costs and an uphill battle to preserve its good name in the extremely conformist financial establishment.

The rating agencies did not create the oligopoly which feathered their bed. Governments did, in a hurried move to plug the perceived lack of caution of institutional investors, and in their all too fashionable worship of the (then) undisputed ultraliberal faith - which precluded state or international supervision on the basis of agreed standards.

This can only be addressed by the Governments, with readjusted regulations. The onus of prudential conduct must be once again put on the institutional investors, which now are only too happy to rely on the agencies' inexpensive guidelines. Rating agencies should be encouraged to compete on quality, possibly through more open competition, and to guarantee that quality through open process, peer reviews and the like. There is no reason why, in a carefully designed and agreed new business environment, they could not provide the quality service which is needed from them - while still earning a healthy profit.

Coming back to France's sovereign debt, would such a change bring about more lenient or more stringent grading? I truly have no idea.

But it would give the agencies' output much more authority, whereas they are now open to the usual indictments of incompetence, corruption and (rather visibly) merely parroting the line and verse of the Old and the New Testaments - TE/WSJ Op/ed. Therefore removing any usefulness their advice could possibly have.

Hmm, your post didn't seem to bear this out.
Personally I think that their ability to judge the credit worthiness of countries is probably orders of magnitude less than their ability to judge the credit worthiness of companies.

'But it would give the agencies' output much more authority, whereas they are now open to the usual indictments of incompetence, corruption and (rather visibly) merely parroting the line and verse of the Old and the New Testaments - TE/WSJ Op/ed. Therefore removing any usefulness their advice could possibly have.'[Dominique II]

France was warned by Moody's at Xmas. France elected an economically dodgy President. The aforementioned President acted in a manner calculated to persuade all and sundry that he was a money duffer. You have opened a market stall purveying de luxe, sweetly reasonable, charmingly stated, but very traditional denialism.

When the main news on French TV - of all places - has started to educate the French public about the hard realities of France's predicament, your brand of oh-so-sweet-reasonable disparagement of the rating agency sounds old-fashioned, even in France.

'...merely parroting the line and verse of the Old and the New Testaments - TE/WSJ Op/ed.'

Your very creative suggestions, Dominique, coupled with your scant regard for the 'usual organs' suggest that you may perhaps be just a little unaware of a major crisis going on right now. France's friends have been warning her for years that she needs to do something urgent now...

That 'something' does not, I should imagine, involve re-writing the rule-book for the world financial system.

More generally, your willingness to challenge TE's editorial line (not to mention commenters on the fora) with constructive feedback and, basically, the "view from the other side" is highly commendable. Bon boulot ! :)

5 days ago Moodys threatened it will strip Britain of its triple A rating as early as early 2013 if serious debt-reduction reforms are not implemented. Whilst there is no doubt France is a mess, there is also no doubt that Britain is a mess too. Funny I didnt notice an article on that in the Economist - or perhaps that would not fit it with the ideology of its readers - bash others but not ourselves.

You're the one bringing up an anti-France conspiracy. And thanks, I fully understand the difference between a warning and a downgrade. The question was about a _warning_ and I provided a link, not an opinion.

What does it matter what the Economist says about Britain? The Economist isn't there to sit in judgement on economies, it publishes articles that the editors think the target readership will read, thus driving eyeballs to adverts.

Much better to discuss whether this is an reasonable representation of the fact than whether the Economist is being fair, whatever fair means.

There is a fundamental reason why Britain may be considered a better risk by the rating agencies, even if its economy isn't in super shape and government finances look rather worse than in France: Britain controls its own money supply and can needfully print as many pounds sterling as required to finance the government.

France, however, is bound to the gold standard, aka the Euro. So in nominal terms French bonds carry a higher default risk than British bonds - although in real terms and adjusted for devaluation/inflation the risk is probably much the same.

Major rating agencies should be blamed for having contributed to the latest credit market bubble and the Australian court's ruling against one of them got to the point.
In France's case, however, they may have been too shy, probably awaiting legal retribution from over-zealous regulators or judges (like in Italy these days). Strictly applying the criteria set for privately-held corporate names would lead to even harsher judgments in my view.
I happened to get the news late yesterday by an alert on my tablet. It came almost at the same time as another downgrade by Moody's, this time for a Japanese consumer electronics company whose debt was cut to just a notch above junk, as its debt ratios have worsened substantially over the last few years.
France's equivalent measures of balance-sheet health, however, has followed a similar pattern and most financial analysts would issue some warnings when looking at such figures. Both France and Panasonic had their outlook worsened as well, on deteriorating prospects for GDP growth and sales respectively.
Some may raise objections to this argument and claim that sovereign issuers cannot be treated like privately-held corporate names, but it is hard to see a real difference when it comes to EMU members which have relinquished monetary sovereignty.
I believe bond markets still put France's government spreads closer to "core" than "peripheral" Europe in the belief that the Franco-German axis is still strong, but investors may reach different conclusions sooner or later if France remains too complacent.
Admittedly, Hollande's electoral campaign fell short of mentioning the sacrifices that citizens will have to endure, but the commitment towards spending cuts should be no less than that showed in the EMU periphery amid social unrest. The French government's early reaction is encouraging at least, as the Finance Minister takes it as a stimulus for budget cuts and reforms.

In fact, plenty of people in France have been complaining about rating agencies for a long time, and not only because the major ones are "Anglo-Saxon" (one of the strongest terms of abuse in French, in case you didn't know ...)

and? Does it change anything? It's not a question of getting good or bad ratings it's a question that even if they perhaps in a distant 8and probaably imaginary past) were providing a good service, they no longer are. It has been proven that they had their share of responsibility in the previous crisis (the one which started this one), and they have clearly made this one worse, with their insidious comments, and periodic downgrades of certain sovereigns!

Listen, this has been debated ad nauseam here. It's not whether they were good or bad, they were whatever they were? Whether Portugal or Greece (which are completely different economies) should have had the ratings they had, is completely unimportant. What is clear is that their motivations are political, as can be seen by how they protect certain nations, and attack others. In any case Portugal never had 'good ratings'

Do you mean my assertion about people in France complaining about rating agencies for a long time? I can't cite you chapter and verse, but I feel quite confident that if one looks at the annals of publications such as Libération, L'Humanité, Le Canard Enchaîné, etc, you'll find plenty of scorn poured on the rating agencies.

I was talking about "real people", not the French political class.

As to socialism in the US, I must say that I haven't seen much of it; perhaps your eyesight is keener than mine?

This one'll defend the rating agencies till they start downgrading the UK (which they won't anyway). He's basically reflecting his own type of mentality onto us, and is unable to see that what they're doing now is pro-cyclical and is actually contributing to the crisis. It is very simple, any European nation these days goes bust if their interest rates go above 6-7% . Get the rating agencies to downgrade them on a trimonthly basis, write a few ridiculous articles about 'exposure to periphery' and other meme spouting and the like, and you'll get that precise outcome. Which means, they contribute to the crisis, and as such, need to be put in their rightful place - the bin.

Amusing as your comment is a clear example of why many of the Euro currency countries should be downgraded to junk status because they have no understanding of what indeed caused the crisis and rather than actually fix it, rather cover it up with more lies.

Also, even if there were no rating agencies interest rates of 6-7% are still too low to convince me to buy PIGS debt.

No one in Portugal or France was complaining about rating agencies when they received good ratings.

From 1993 to a couple years ago I was a member of the board
of a very specialized French/Portuguese company making heavy engineering vital components for a very important industry.

Owing to my age I now just maintain a non executive and advisory presence.

Given its central and strategic place in industry, the company, although just medium size, had strong connections with financial institutions all gamut.

A common complaint by both my Portuguese and French colleagues (later echoed by the German directors of the large Konzern that bought our parent company) was the total ineptitude of Rating Agencies.

Although by far just an engineering company, we had to work a lot with rating agencies mostly to measure our clients worth (mainly state or state backed large companies).

In a smaller measure we had to work with rating agencies also on our reasonably large financial investments as we were an abnormally high profit industry.

All this took place long before The Economist and other newspapers opened their comments threads, but the annoyance of financial operators with Rating Agencies ignorance was legendary.

The most comical one, that was repeated and made public a year or so ago, was Moody's continuous reference to Spain, a monarchy as everybody and his uncle knows, as the Republic of Spain...

This may seem unimportant. It isn't. When in your house you are not sure whether a room is the dining room or the loo, you may have embarrassing consequences.

I fully appreciate you have no means to be aware of these small, no headlines making tidbits.

But I can assure you the contempt in which rating agencies are held among competent financial agents, mostly banks, credit providers and so on, even government officials, is widely and deeply felt.

Be they, to my personal experience, French, German,Portuguese even knowledgeable Britons, Swedes, Luxembourgers and non gambling Americans. All that long before 2008 and the ratings agencies fiascoes with the financial meltdown.

New inexperienced arrivals at the financial markets were the ones, as any new arrivals, who started taking seriously a tool they thought was fashionable: rating agencies.

More or less at the time (around 2002??) when the City and up to a point Wall Street changed atmosphere and instead of being prudent investors, as was typical of big finance became horse racing betting agents.

Instead of horses they used to bet on currencies and other paraphernalia they have no idea of their essence.

You may be sure a lot of posters here who support rating agencies are exactly that new class of inexperienced betting bookies and their media supporters that are reducing the City to a time bomb or Wall Street to a casino.

Some, I accept, have no choice but work with them. Older savvy generations are frankly suspicious.

Don't repeat your innuendo of sour grapes.

Australia is the first country - she won't be the last - to take strong measures against rating agencies,

Australia has no reason whatever to be motivated by sour grapes. She has always had prefect ratings.

Neither have I. All the ratings I've been involved with could not have been better. Yet my contempt for the ignorance and inefficiency of the rating agencies I know couldn't be greater.

You may be sure that the wave will spread as the head of Australian BlackRock (shareholder of rating agencies) has just predicted.

Maybe that´ll be the start of the Aegean Stables clean up the financial industry so badly needs.

It seems to me that the real problem is that too many people believe that the opinions of the rating agencies are reliable, not to say infallible.

Let's consider how well they performed in 2008; before September 15, were their credit ratings suggesting that Lehman Brothers was a very risky institution, about to fail?

I think that they were wrong then, which implies to me that one need not listen too carefully to what they say now. Indeed, the "spread" of 10-year French bonds compared to German ones has barely changed as a result of this announcement; the increase from 0.73% (yesterday) to 0.74% now (according to the FT) is hardly dramatic! So maybe this "shock, horror" news isn't really treated as such by those who are investing at the moment.

Sunny as I recall. Housing markets in a large number of US states unexpectedly fell simultaneously, sending half a trillion dollars of CDOs under water. The sudden financial shock caused the Stock market to crash.

Many investors have to believe them, being forced by regulations to invest according to the rating agencies' opinion. In reality the rating agencies are heavily influencing the global allocation of capital with their calculated opinions they are so happy to sell.

There is evidence to suggest Moody's is corrupt.
But the most significant evidence of all, which doesn't suggest, but rather demonstrates, is that Moody's is extremely incompetent.
And biased.
They should go rate their great-grandmother's fat rears.
It would be a better service for human kind if they did so.

Social contributions make up 32% of France's GDP, compared to 26 to 31 % in other OECD countries, so it's not particularly high. The difference of course is that most of it comes from the State, it's a choice the French made as a society and I respect that choice.

But I see what TE is getting at : they want so send a powerful message to the world's (and not only France's) poor : pull yourself up by your own bootstraps, for Christ's sake !
And if you don't have bootstraps, well sad day for you.

One last thing : spare us the "U-turn" comments. Could John Peet (and Sophie Pedder for that matter) start thinking outside their British box ? When a government starts engaging in structural reforms, it's not - or it doesn't need to be - the Thatcher years all over again.

If you are going to write 'but the UK is worse' then please dont bother. If you dont like the contents of the article, please have the decency to put a coherent defence together that doesnt involve the fallacy of defelcting the spotlight onto a neighbour.

The French President, François Hollande, wants to realize savings and appreciates efficiency, but...

As a civil servant in a French administration department, I have saved the government a lot of money. First, I refused to take part in smuggling funds out of the ministry, disguising bills or sending new technological materials and furniture paid by the ministry to my superior's house. Later on, I was very efficient dealing with contracts for purchasing aircraft and equipment for the Army. No late payment interest charges were incurred on my account during my 4 months management period though 8 millions euros worth of interest payments were recorded during the other 8 months of the year. After taking exemplary care of public money (some thought 'too good'), I was declared mentally ill and then dismissed without compensation or retirement benefits. However no psychiatrist declared any mental illness.
The case went to Court but the legal proceedings were corrupted. The head office wanted to confine me in a psychiatric institution in order to hide the case and methods employed. I was summoned by the police, but instead I succeeded in meeting with expert witnesses in psychiatry : these doctors - experts in the field of mental illness - confirmed I was fine. Due to the repression applied, I have not been successful in fighting for my rights on my own.
In 2012, The French government has promoted CGA Palagos to second head of the Defence cabinet. But, he was the man who has dismissed me, without taking in to account neither my honesty, nor my efficiency. He judged on my health, without the medical committee's agreement, though regulations demanded it. Besides, he made a forgery. The decree declaring my dismissal is based on an agreement of personnel representatives which does not exist. It takes into account discriminative letters. All the personnel representatives refused getting involved in my dismissal.

Sounds like france is like the UK in that respect.
I was illegally sacked from the brittish civil service scottish government. I asked for tribuneral they then claimed they had sent my contract in admin error, pension pack, and to 3 jobs in error. The (british tribuneral service is part of the civil service)
I complained to minster of scottish parliament who said they are "his people" as was mps in office i was meant to be in. The member seemed like was being ran by civil servants , rather than the otherway round always concerning for democracy.
The british civil service commison, includes the head of the senior civil service union. Some consider a conflict of interest. The commioners have also been given jobs in the civil service on final salery pensions, years after scheme eded for normal new members of civil service. (As other favoured people as well as commioners have recived) There still appears conflict that can be given jobs in organisation meant to overlook.
I would suspect similar treatment here in the UK.

Sadly the only recommendation I can give is to immigrate to the U.S. If you choose immigration, I’d recommend any state run by Republicans (Texas, Tennessee, etc)as opposed to a State run by Democrats (say New York, California, or Illinois) as the corruption in Democratically run states is well known. I’d also avoid any State recently run by Democrats (say Louisiana), as the level of corruption is nearly as bad - but getting better.

>Yet a fair chunk of its analysis touches home-grown problems that France cannot blame on others.<
I strongly oppose this constant British bashing of the French. The author badly underrates French refinement.

Nobody said anybody owed France a living. Actually, nobody owes France, or any other country, a living.

What TE says about France's real and profound issues has not, *so far*, discouraged investors from purchasing French government bonds at historically low yields. While investors are not above gross misjudgements (see the past 700 years of economic history), it is somewhat amusing to see French bond yields drop in synch with their the country's credit rating.

So, socialist Hollande and gang finally face reality. France problems in a whole lot of areas were known since long. For instance "...It notes the country’s high exposure, particularly through its banks, to the battered peripheral economies..." was apparent since this diagramm http://www.nytimes.com/interactive/2010/05/02/weekinreview/02marsh.html was shown in May 2010.
BTW, it becomes now obvious to everybody why the French soldiers Strauss-Kahn, Lagarde and Trichet have set up in their respective positions huge programms which primarily served the French finance sector, may it cost the taxpayers everywhere what it wants.

" Germans haven't yet paid a single Euro cent. That's not how the bailout fund works, the member state in need must layout their plan and ask permission to be bailed out by the fund (EC / EU / ECB). THEN, a bond offering takes place to raise those funds which are then LOANED to the member state in question, AT INTEREST. Stop stirring up trouble with rumors that German taxpayers are bailing out the EU, that is a lie. Those of us sitting in these policy meetings are fed up with Germany and their bad attitude, like an angry child, they storm out of most meetings, toys in hand leaving the sandbox.

Of course Germany doesn't want to be controlled by the ECB, especially as long as they no longer have the keys to the shop. Germany is bitter as they can no longer use the ECB as their own personal cash register, as they did for 10 years, foisting their predatory tactics upon the defenseless periphery, as well as Germany having subsidized
trading for the last decade, AND the future fall out for
which they shall have financial havoc within their own nation, which will be passed on and spread out among the other EU member states to choke on.

Deutsche Bank, alone, owes the FED $354 BIL USD, See GAO FED Audit pgs. 130-131. Germany is hardly in a position to lecture anyone on financial matters. The ECB as a Central Bank is the "public authority" that supervises financial institutions and markets, while conducting monetary policy, FULL STOP. The ECB DOES NOT NEED PERMISSION as their mandate is granted by European Supervisory Authority, which clearly trumps Germany's Constitutional Court (BGH, Karlsruhe), which is only applicable to Germany within it's own sovereign boarders.* If you (ECB) SUPERVISE someone, they (Germany) are SUBORDINATE to you, your are their SUPERIOR, and they MUST follow your ORDERS. Germany, read the treaty you signed and agreed to follow: Treaty on Functioning of the European Union.Article 3, 1. The Union shall have exclusive competence in the following areas: (a) customs union; (b) the establishing of the competition rules necessary for the functioning of the internal market; (c) monetary policy for the Member States whose currency is the euro; (d) the conservation of marine biological resources under the common fisheries policy;(e) common commercial policy. 2. The Union shall also have EXCLUSIVE competence for the conclusion of an international agreement when its conclusion is provided for in a legislative act of the Union or is necessary to enable the Union to exercise its internal competence, or in so far as its conclusion may affect common rules or alter their scope.READ the LAW to understand the LAW, Germany joined the Union of their own volition, they can also leave. restoring balance among the remaining core (we all hope)."

The problem with this downgrade is that it's not based on precise, verifiable criteria (like for example: we will downgrade France if its debt to GDP ratio goes over xxx % and/or its growth fails to reach its 2007 peak) but vague and spurious concepts, that change depending on what's in the news (and in The Economist) at the moment. That's why the French (and the Spaniards and Italians before them) are furious.

These are decisions with huge consequences that are left to the arbitrary interpretation of a couple of Frankfurt-, London- and New York-based analysts who seem to move the targets constantly.

Why has labour market reform to do with credit risk? Why does the fact France does not have "a national central bank" was cited as credit negative, since the OMT programme makes changes of default virtually inexistant?

France and the UK were placed on negative outlook on exactly the same day in February this year. What happened since? Britain had a double-dip recession and will exceed its budget deficit targets this year, taking its debt-to-GDP ratio over France's this year or next, while France avoided recession (and without the help of the Olympics!) and is actually reducing its deficit to around 3% (even if it was 3.5% as the EU says, that'd still not be as massive as the UK's 7%).

So Moody's has to justify these double standards, and improve the transparency of its decisions. The muted market reaction to the downgrade this morning is a warning to Moody's too: you're not the oracle you pretend to be, without changes you're risking to become even more irrelevant.

I am not sure you understand what the rating actually is. It is simply the likelihood of getting your money back if you lent money to the rated entity.

GDP growth is only tangentially relevant, and in the case of France, when it joined the Eurozone (and accepted the German-controlled ECB as lender of last resort) it limited itself to taxation as the only guaranteed vehicle to repay debt e.g. some if its emergency ability to guarantee French govvy bonds was potentially lost.
Hence any downside risk to taxation (high labour cost, falling competitiveness) increases credit risk, and so France was downgraded.

Arbitrary and frankly silly comparisons with the UK are off topic and irrelevant [and far too common with the French]

Lastly, the ECB and all the eurozone funding entities (EFSF etc) take Moody's ratings seriously. The fact the market did not move is simply the fact the action was not a surprise - it does not mean it is not important.

The problem with "precise, verifiable criteria" is that once a meric has been put in place, the metric itself becomes useless.

For example, the original 5 Maastricht criteria were reduced to three when the Euro actually started as so few countries qualified. And this despite the fact that so many countries cheated e.g. Italy's qualify for euro tax, France sold France Telecom to meet the budget deficit target ...

And of course, France and Germany simply ignoring the Stability and Growth Pact shortly after the Euro was established.

It is a sad reality that if the Eurozone had adhered to 5 Maastricht criteria, there would be no crisis today. Indeed Europe would be a shining light to the world. The politicians of the European Union and its bureaucrats in the institutions bear a heavy responsibility for this catastrophe. It is a scandal they will not be held to account.

The problem with this downgrade is that it's not based on precise, verifiable criteria (like for example: we will downgrade France if its debt to GDP ratio goes over xxx % and/or its growth fails to reach its 2007 peak) but vague and spurious concepts, that change depending on what's in the news (and in The Economist) at the moment. That's why the French (and the Spaniards and Italians before them) are furious. "
GDP growth is only tangentially relevant, and in the case of France, when it joined the Eurozone (and accepted the German-controlled ECB as lender of last resort) it limited itself to taxation as the only guaranteed vehicle to repay debt e.g. some if its emergency ability to guarantee French govvy bonds was potentially lost.
Hence any downside risk to taxation (high labour cost, falling competitiveness) increases credit risk, and so France was downgraded.
I supose they have to use soem crirtiera to determin is likly to get money back quantificables qualitives such as belfif of others that will. Cridet rateing duel role as incidcator and influencers.
what is specifically different about and previous before downrated france and france now for curiosity.
The uks is on negative watch I thought if a tripple dip downgrade.
If the UK gets a downgrade of starts to slip may be uk go south quicker than france as more imbalanced more reliant on credit rating?. I supose when looking at any rating system could ask why is one country preferance to another as both on outlook before.
because not an exact science leway could be given or not in grey areas may be.

Actually there is a set of fixed targets Moody's uses. Which accounts for varying amounts of the rating. ~50% from memory. Then they take into account things like economic diversity, rule of law, labour costs, etc qualitatively. France does REALLY well on all this 'judgement' criteria which is why it is Aa1 instead of Baa like say Mexico, which according to the numbers has MUCH better government finances.

I understand very well what credit rating is. And I'm not the only one who says it is controversial to consider the absence of a national central bank as credit negative, just have a look at what FT Alphaville says about that.
You haven't addressed my point about OMT, and yet it is crucial: this is what has changed since Moody's put France on a negative outlook and has actually reinforced its emergency ability to guarantee French govvies. I consider myself that not having a national central bank able to use the money-printing presses and devalue the currency freely should actually be credit positive, since a foreign investor is less likely to see the real value of its investments shrink. That QE in the US and the UK is not considered credit negative is the biggest con of all time, and will undoubtedly lead to a disaster the scale of the AAA subprime mortgages in the future.
And yes, comparisons with what Moody's calls "AAA-rated peers" are VERY relevant. These comparisons are everywhere in ratings agencies reports, have you never read the full statements? Since ratings agencies operate in a world with no clear criteria on GDP growth, debt ratios, budget deficits, etc, the only reference the market has to value sovereigns is through comparing ratings between countries. And needless to say, when you compare French debt metrics to the UK's, it's hard to understand why one is AAA and the other one isn't. My bet is that Moody's will downgrade Britain after Osborne's Dec 5 statement.

OMT does not make sovereign default impossible, because, put simply, Germany voted against the original plan and may still hold up any emergency process.

'not having a national central bank able to use the money-printing presses and devalue the currency freely should actually be credit positive'
Rather like saying that not having a fire department makes fires less likely, because everyone will be more careful with their matches.

'since a foreign investor is less likely to see the real value of its investments shrink.'
And they wouldn't shrink in a default?

'And needless to say, when you compare French debt metrics to the UK's, it's hard to understand why one is AAA and the other one isn't.'
As stated above, UK can guarantee its own bonds whereas France needs Germany's agreement.

However you cut it, France's membership of the Eurozone is credit negative. That is the core the situation.

"However you cut it, France's membership of the Eurozone is credit negative. That is the core the situation."
No, it's an interpretation that is certainly not shared by everyone outside the British Isles and America. Just like the idea that debasing your currency through money printing or endless QE is supposedly not credit negative.
I'm not saying France deserves top grades or that it's economy is booming, everyone in France recognizes it isn't. But French people have a Cartesian mind, we want to be judged on objective figures, quantifiable criteria we can act upon, and not on prejudice or ideology. If Hollande had indeed failed to meet the 3 pct deficit target in 2013 for example, then yes, Moody's should have downgraded France. But the timing of this downgrade -just when the Socialists show they'll engage in reforms-, the rationale mentioned by the agency, as well as the jubilant reaction in the British media, all concur to convincing the French that it isn't a fair and balanced judgement.